New Rona CEO in race against time as anxious investors seek results

Rona CEO Dominique Boies in race against time

MONTREAL — Acting Rona Inc. chief executive Dominique Boies wore a grey-coloured fitness watch with his shirt and tie when he met reporters Thursday to announce he is steering a complete reassessment of the company’s business and may sell assets to improve its thinning profit and sagging share price.

The 40-year-old finance whiz, who has been with the hardware chain for barely a year, tries to run every morning before heading into work, measuring his progress with a chronometre. Now that he’s been thrust into the top job after the dismissal of Robert Dutton, he faces a similar race against time winning over the company’s increasingly discouraged shareholders.

With a proxy battle looming, the stakes are high. Rona last month tallied an 89% decrease in third-quarter profit and warned that consumers remain skittish about home renovation projects. Meanwhile, the housing market is slowing and rivals are bearing down.

Rona’s estimated 19% share of Canada’s $36-billion home renovation market in 2011 is under threat. Positive earnings may soon turn to losses.

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The hardware chain is grappling with the legacy of Mr. Dutton — a grow-no-matter-what strategy that saw it push outside Quebec into the rest of the country through acquisitions. Rona today has more than 800 stores of various sizes and formats under several different banners, with three different ownership models.

In addition to straight retailing, it also makes money distributing wares to its own merchant-dealers as well as to other independents. Finally, it runs a specialized plumbing-and-heating and ventilation business, serving professional contractors from a network of 60 stores.

It all amounts to a complicated and far-flung network, with some parts more successful than others. With little hope that a big mass of cash-flush Canadians will suddenly rush to its stores, Mr. Boies has realized the only path to stable profits is to clean things up. Rona’s board, pressured to do something by investors, has given him the green light.

But how far Mr. Boies will go to right-size Rona’s business remains to be seen. Rona has not hired outside advisors to help it weed through its assets to determine which to keep and which to let go. And Mr. Boies gave only one specific financial target the company hopes to achieve at the end of the exercise: Bring its current earnings before interest, taxes and depreciation margin of 4.7% in line with industry standards.

There were some clues Thursday as to what he’s thinking. Mr. Boies said Rona’s Ontario big-box outlets are underperforming, which means he’ll continue Mr. Dutton’s plan to close some and possibly sell others. He said parts of the company’s plumbing-and-heating businesses may not have enough critical mass to justify current investment. He said Rona also could beef up its sales to contractors in rural areas.

Mr. Boies contends he can achieve more than Mr. Dutton’s goal of a $40-million EBITDA increase by the end of 2013. He said Rona’s only must-keep asset is its distribution business.

“There was an urgency to act and that’s why we’re doing so,” Mr. Boies said. “This is about re-establishing a solid foundation.”

Some shareholders welcomed the move. Others dismissed it as a murky effort with no clear benchmarks or metrics.

“You know what is clear, ultimately? A $14.50-per-share opening cash bid from Lowe’s [Cos.],” said Dana Merber, a senior analyst at I.A. Michael Investment Counsel-controlled ABC Funds in Toronto, which controls about three million Rona shares.

And therein lies the heart of the matter.

Mooresville, N.C.-based Lowe’s wants Rona — all of it, preferably — and has offered a specific amount that happens to be 40% more than the Quebec company’s current share price. It has since pulled its bid, but nothing indicates it wouldn’t try again.

Invesco Trimark and other big shareholders believe Rona’s board has a duty to engage Lowe’s in talks and have signalled they’ll try to oust Rona’s current slate of directors if they don’t. They want money in their pocket now, not a promise of money at some point in the future by an interim CEO who may not be there to deliver it.

Rona shareholders have suffered through a negative total return of 57.7% over the past five years even as the TSX composite gained 2.8%. They have tasted salvation in Lowe’s $14.50-per-share offer. Once you’ve sipped real champagne, it’s hard to get too excited about the fake stuff.

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